Study ranks Ocala as 4th most profitable market for renting houses

Ocala ranks as the nation's fourth most profitable community for landlords to rent out single-family homes.

By Fred HiersStaff writer

Ocala ranks as the nation’s fourth most profitable community for landlords to rent out single-family homes.

The ranking comes from a recent report by RealtyTrac, an online company that analyzes the country’s home sales and foreclosure market.

RealtyTrac Vice President Daren Blomquist said that while the study had shortcomings — for example, it did not take rental inventory into account — it was meant to be a broad tool to help interested buyers who are looking for investor properties.

The study was geared toward investors who buy one or two residential properties at a time.

“We created this (report) with our customers in mind, the mom-and-pop, individual investors,” Blomquist said.

“The folks I’ve talked to who are acquiring these (single-family homes) in bulk or in larger quantities are saying that because foreclosures are starting to dry up, more and more they’re buying homes off the” multiple-listing service, which is the database used by Realtors, he said.

But before investors head to Ocala to buy single-family homes in hopes of getting rich, Ellison Property Management Inc. owner Dwayne Carlton warned that the rental property market is far more complex than the RealtyTrac study might suggest.

According to the report, the most profitable rental communities for landlords are Memphis, Tenn.; Saginaw, Mich.; Toledo, Ohio; and then Ocala. Each of these markets had an annual cash purchase cap rate of more than 10 percent.

To determine rankings, RealtTrac examined the median sales price for three-bedroom homes in various metropolitan areas. The company then determined the areas’ average rent for three-bedroom homes.

RealtyTrac calculated the cash flow — after the owner sets aside money for taxes, fees and maintenance — that landlords would enjoy from renting the property. RealtyTrac then divided a year’s worth of cash flow by the purchase price of the house to get the annual yield.

Ocala’s annual yield was 10.23 percent for homes purchased with cash. The area’s median home sales price for three-bedroom homes was $75,357. The average monthly rent for such homes was $1,070, according to the report.

Other top Florida communities were sixth-ranked Palm Bay, with an annual 9.77 percent yield; Jacksonville, ranked eighth, with a 9.59 percent yield; and Deltona, ranked ninth, with a 9.39 percent yield.

Carlton said RealtyTrac’s report should most likely be taken with a grain of salt. Carlton’s company manages more than 700 residential rental units.

“Anybody contemplating buying a property and using it as a rental, they should first seek the advice of a professional property manager,” Carlton said.

That’s because there are many variables that determine how much owners can expect to actually get in rent, he said.

Carlton said he’s reminded of the recent real estate bust when he hears about easy money to be made renting out property.

Buyers must consider the age of the home they purchase, the age of the appliances, and when those appliances will have to be replaced, he warned.

And there are other potential big-ticket costs, such as when the home will need a new roof or air condition/heating system.

Investors also must consider the average income of potential tenants and make sure there are enough people who can afford to pay the kind of rent necessary to make the home purchase worthwhile.

And while tax rates have fallen, home insurance rates have not.

Considering the age of the home, “it’s damn near impossible to find insurance. Insurance is a big deal,” Carlton said.

“(An investor wanting to rent) may find out they’re putting more money into the house every year (than they collect),” he said.

Carlton said many people have bought homes not taking into account the slew of variables that go into being a landlord.

“Then they find out the rest of the story and say, ‘Oh my gosh,’ ” he said.

Any talk of easy money renting property reminds Carlton of the 2005-06 housing boom in Ocala, he said.

When area home prices were skyrocketing and investors were buying properties to flip or rent, many buyers overpaid, he said.

Many then asked him to help rent out their freshly acquired properties, Carlton recalled. But most learned that renters weren’t making sufficient income to pay the kind of rent owners needed to cover mortgage and related expenses.

“Now they are all gone,” he said of those investors.

“It’s all in the numbers. (Managing property) may not seem fancy, but it’s still basic business,” he said. “None of that really changes.”